Starting your own non-profit organization

by Guest on February 3, 2014

This is a guest post by Travis Metcalfe who founded White Dwarf Research Corporation while he was a graduate student. In 2008 he initiated a non-profit adopt a star program that funds an international collaboration doing exoplanet science with the Kepler space telescope. He is also the author of an AstroBetter post about crowdfunding research.

In August 2011 during a campaign event at the Iowa State Fair, Mitt Romney (in)famously remarked “Corporations are people, my friend”. Politicians are rarely this candid about corporate power, but from a legal standpoint he was absolutely correct. After a clerical error in the 1886 case of Santa Clara County v. Southern Pacific Railroad, corporations have been considered “natural persons” under the law—allowing them to claim all of the rights granted to people under the U.S. Constitution while remaining exempt from some of the basic responsibilities of citizenship. Politicians have understood these advantages for a long time, using political action committees (PACs) to raise funds for their campaigns. Scientists have been slower to adopt this legal structure, which has a perpetual existence, limited liability and, in some cases, tax-exempt status. But just as every politician needs a PAC, every scientist should have a non-profit organization.

Why would you want to have your own non-profit organization? When I was in graduate school, I prepared a NASA funding proposal in collaboration with my advisors, hoping to get the support I needed to finish my thesis. Near the end of the process, I learned that the university would not allow me to be a co-investigator on the proposal despite the fact that it was my dissertation project. The proposal ended up being funded with my advisor as the PI, but I decided that I never wanted to be in that position again—so I started my own non-profit organization. As a postdoc my non-profit received several small grants to build a computer cluster, facilitating my work while avoiding any property conflicts when I moved. I also used it to administer my own NSF fellowship, when my original host institution could not offer me health insurance. Most recently, my non-profit has helped raise private funding to support my research team and simplified the process of submitting international proposals.

Establishing a non-profit organization is easier than you might think. The details depend on where you live, but the process generally involves filing “articles of incorporation” with your local Secretary of State and paying a filing fee (typically under $50 for a non-profit). The state government publishes guidelines for the content of this document, and there is no need to hire a lawyer. If you want your non-profit to be tax-exempt for scientific research or public education under section 501(c)(3) of the tax code, there is an IRS publication with specific language that you should include in your document before filing it. Next you need to obtain an Employee Identification Number (EIN), whether or not you plan to have employees. This is the business equivalent of a Social Security number, which is required to apply for tax-exempt status. The application form is simple enough to complete without a lawyer, and the IRS filing fee is $400 for organizations that expect less than $10,000 in annual revenue during each of their first four years (otherwise it is $850).

Maintaining a small non-profit organization is trivial and inexpensive. If your annual revenues do not exceed $50,000, the IRS only requires an electronic postcard each year to certify this fact and to update your contact information. The requirements at the state level depend on where you incorporate, but may involve a periodic report to verify the name and address of a “registered agent” for the organization (generally you, at your home address). As a 501(c)(3) non-profit organization, you can register with FastLane and NSPIRES and begin applying for grants. You may not even need to negotiate an overhead rate until after you receive your first award. It gradually gets more complicated after that, so stay small if you want to keep it simple.

Another thing to keep in mind is that if your goal is to raise less than $10,000 for a specific project, do yourself a favor and use an existing crowdfunding website. And if you just want to submit a grant proposal, there’s no need to reinvent the wheel—request an affiliation with an experienced soft-money shop, like Eureka Scientific or Space Science Institute, where they administer grants for PIs who work from home.

At the end of George Orwell’s Animal Farm, the pigs had taken control and revised the rules of the community to include just one Commandment: “All animals are equal, but some animals are more equal than others”. In a modern context, the allegory suggests an important lesson about people, both natural and corporate—is it obvious by now which one is more equal than the other?

Have any experience or questions about crowdfunding and/or non-profits? Let’s discuss in the comments.

{ 9 comments… read them below or add one }

1 Adam Ginsburg February 3, 2014 at 4:33 pm

Since NSF postdocs and most grants exceed 50,000/year, what additional reporting is required in the range 50-100k?

Could you also expand on “avoiding any property conflicts” – does that mean the NPO purchases the goods and they belong to the NPO, so you can take all of your equipment with you when moving? Had you gone through your university, would your equipment be university property instead?

Also, you’ve discussed a lot of the positives – are there any major disadvantages besides dealing with taxes & the government? e.g., I could imagine this leading to conflict with university administration that would prefer to take your overhead money for themselves.

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2 Nick Nelson February 3, 2014 at 4:50 pm

At DoE labs like Los Alamos you have to have any outside employment approved by the lab management. They also don’t allow the use of non-lab purchased equipment on lab property, so I don’t think something like using an NPO would work here unless you were actually planning to get “corporate” workspace. I’m sure there are plenty of places an NPO would work well, but DoE labs may not be on that list.

3 Travis Metcalfe February 3, 2014 at 8:05 pm

NSF postdocs are awarded to the individual, only the institutional allowance is awarded to the host institution. But yes, most grants will exceed $50,000/year and will generally require you to file Form 990 annually with the IRS, as well as satisfy numerous auditing and accounting requirements from the funding agencies. I’ve never done this myself, so I can’t be more specific.

Yes, the issue with property is that it belongs either to the funding agency or to the university where it is purchased, so in general you can’t take it with you. If it belongs to the non-profit, it travels with you (important during frequent moves as a postdoc).

There are no legal disadvantages as long as you disclose your other relationships and don’t use university/laboratory resources without paying for them (generally through overhead). There may be political disadvantages, depending on your situation.

4 David February 5, 2014 at 5:25 pm

I am very interested in the “soft money shops” mentioned in this article
and would be very interested in hearing about the experiences of anyone
who has or had worked in one of them, particularly on the issue of geting grants.
The only real information I have found is a from a 2007 Nature.

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5 Travis Metcalfe February 6, 2014 at 2:55 pm

There was an article by Barb Whitney in the AAS Newsletter about working at a soft-money institute. You can find it at http://arxiv.org/pdf/1109.1014v1.pdf#page=17

My own experience is that funding agencies treat these institutes the same as federal research laboratories, and review panels only care that the PI has relevant experience and access to sufficient resources to complete the proposed work. Getting grants is always hard, but it’s no harder at a soft-money shop, and you can use more of the budget for science rather than overhead.

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6 David February 6, 2014 at 11:56 pm

Thank you !

7 Joseph Wang February 11, 2014 at 5:25 am

One great book for starting a non-profit is the Nolo Guide

http://www.nolo.com/products/starting-and-building-a-nonprofit-snon.html

One thing that would be really interesting is why non-profits meet crowdsourcing.

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8 Joseph Wang February 11, 2014 at 5:28 am

Also the Nolo Guides go into the Form 990 for non-profits. The basic issue is that the IRS wants to make sure that you aren’t using the non-profit to dodge taxes, and so a lot of the forms are just to let the IRS know who your funders are, and that it’s a sneaky effort to dodge taxes.

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9 Amy Kimball March 6, 2014 at 6:53 pm

The point that really stuck out for me was the bit about not being able to get health insurance through the host institution on an NSF fellowship. This can also be a problem for an Einstein fellowship. (Hubble does not have this issue, as a Hubble fellow can be officially considered as an employee of the host institution; NSF and Einstein do not allow this.) This is very useful information to disseminate to those Fellows and hopeful Fellows.

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